The democratization of online shopping driven by eCommerce platforms that are removing barriers for newcomers, online creators, and micro brands coupled with the domination of social networks has led to an exponential growth in the number of online merchants which resulted in a rise in competition and customer acquisition costs. With increased competition and marketing costs, customer retention tactics are more critical than ever. While only 18% of merchants focus on retention, it costs between 6 to 7x more to acquire new customers than retain current customers, and existing customers are 50% more likely to buy from you again. Moreover, existing customers spend an average of 31% more than new customers.
Here are a few common yet proven and highly-effective customer retention tactics.
Email marketing strategies can be powerful and cost-effective for driving repeat purchases and engaging with customers. Welcome emails, cross-sell emails, upsell emails, and content emails are all examples of this. By utilizing email marketing, businesses can drive sales and build relationships with their customers.
Social media engagement is a valuable tactic to connect with customers on an ongoing basis and build strong relationships as it allows businesses to reach their customers where they are most active online. By creating a presence on popular channels and offering valuable content, businesses can reach a large and engaged audience and foster a sense of community and connection with their brand. Regular engagement with followers can also increase brand awareness and drive repeat business.
Top-quality customer service can set businesses apart from the competition. There are many ways you can provide high-quality customer care, even business with limited resources. Adding an FAQ section to your website and implementing chatbots can provide convenient, automated support for customers. To truly stand out, you need to be proactive and take extra steps to surprise and delight your customers, creating memorable experiences that will keep them coming back for more.
Loyalty programs encourage repeat purchases for the long term. By offering rewards and incentives, you can motivate customers to continue shopping with you and build long-term relationships. It’s key to communicate the value of the loyalty program clearly and simply so customers understand exactly what they are getting. Members of loyalty programs are twice as likely to make another purchase, spend more when they shop and are 9x easier to convert.
Generating Network Effects
Beyond the popular retention tactics mentioned above, the key to creating long-term retention is to generate network effects. This refers to the phenomenon in which a product or service becomes more valuable as more people use it, and this can create a positive feedback loop because the increased use of the product or service leads to even more people using it, which in turn increases its value. In a business context, network effects can be a powerful force to drive product adoption and business growth by creating a competitive edge that’s difficult to replicate. This is especially important in eCommerce because while flexibility is a universal advantage and can help you, it also serves your competition, which can quickly duplicate successful products, user experiences, and sales tactics.
Network effects could be generated by tapping into the following four loops, which have been strong guiding principles in consumer software product management, and can be applied to eCommerce as well:
- The viral loop – This loop refers to products and services that are designed in a way to encourage customers to share them with others. This is the mechanism that drives continuous referrals for continuous growth. It is much more than injecting simple “share” buttons into your store. Rather, about how the shopping experience is designed to encourage sharing because a referred customer is approximately 18% more loyal than a customer acquired by other means, and referred customers are 4 times more likely to refer more customers to your brand. The investment in these types of products and services can be well worth it because customers referred by other customers have a 37% higher customer retention rate. This is the concept of driving continuous referrals for greater brand awareness to drive steady growth. Groupon’s approach to discounts over 10 years ago is probably the best example. The company offered coupons, but the discount unlocked only if a certain number of people signed up. This resulted in continuous referrals and repeated sharing of content.
- The compulsion loop – A compulsion loop is a feedback loop that drives repeated engagement with a product or service by providing a regular, yet surprising and variable rewarding experience that compels users to keep coming back for more. Social media and mobile games are both great examples of how a compulsion loop can drive user engagement and retention. Both platforms offer a regularly updated feed of fresh content and variable rewards, which creates a sense of anticipation and excitement for users. Whether it’s through changing content, offering new products, or new discounts, if you start generating that addictive habit within your customers, they will come back.
- The social loop – This concept is to generate participation, not just consumption, by creating an online environment in which visitors contribute to one another by sharing ideas, and helpful information not only about the store products but also about the whole domain. This makes your online store a place to come back to gain knowledge and inspiration that goes beyond a purchase. To generate a social loop, online merchants need to implement strategies that encourage user-generated content, such as reviews and forums. This can create a continuous flow of engaging and relevant content, which helps to build trust and credibility with the audience. By fostering an active and engaged community, merchants can drive more traffic and generate potential purchase opportunities. For example, TripAdvisor created a platform for travelers to share experiences and opinions about destinations and accommodations. This is how TripAdvisor established itself as the go-to platform for travel planning and utilized that competitive advantage to expand into the booking space.
- The data loop – This is an iterative process of capturing data, analyzing it, translating valuable insights into action items, and continuously making adaptations. This is a feedback loop to intake data from customer interactions to improve the experience for subsequent customers. There is a growing number of analytics, AI-powered applications and platforms to assist in the implementation of this process. These analyses can help you offer the right products in the right order for the right user to increase relevance and reduce friction for the user while increasing conversion and boosting revenue. In addition, ongoing datification and adaptation can help fine-tune sales processes, create more targeted marketing campaigns, and more. Ultimately, businesses can spend resources more efficiently and create highly-optimized experiences for customers which will lead to better conversion rates.
It’s essential to prioritize customer retention to generate cost-effective, healthy growth. At the same time, to establish a solid competitive edge that’s difficult to copy, small businesses should invest in the four loops to achieve a flywheel of network effects that will continuously improve customer experience, drive down unit cost, and increase revenue and profitability.
Oren Inditzky is the Vice President of Online Stores at Wix. Small business owners can leverage Wix’s leading eCommerce platform to launch, run and scale their online store.